As if boom and bust business cycles aren't a thing in free markets. Or monopolies. Or monetary policy. Or externalized costs. Or tragedy of the commons.
That's just run of the mill anti-intellectualism.
Monetary policy is one that is more up for debate - it seems reasonable that it can have a positive effect on gdp, but something has decoupled GDP from measures that actually effect people. I think that something is monetary policy, and note in passing that GDP was, prior to 1970, a much better proxy for energy/capita than it is now [1].
I watch the US economy with curiosity and note, for example, that core inflation, the central plank of US monetary policy, excludes basically anything I spend money on.
[1] EDIT: https://wilcoxen.maxwell.insightworks.com/pages/804.html
https://img.4plebs.org/boards/pol/image/1429/19/142919512461...
The late 1970s were when neoliberal economic fundamentalism took over public policy.
The graph shows the effect on equality.
I would argue this is when most economists lost influence in Washington, while a few like Art Laffer gained massive influence. The New Deal era prior to this was largely motivated by the work of noted economist John Maynard Keynes. Although the causality is debated, the New Deal was followed by recovery and economic growth. Economists gained influence in the public sphere because of the effectiveness, real or imagined, or "Keynesian" economic policy. These folks had lost sway in Washington by the early 70s due to the stagflation crisis[1] and the collapse of the "New Deal coalition" after the tumultuous 1968 presidential election.
The late 1970s was dominated by the ideas of economists like Art Laffer, who took an uncontroversial economic idea "tax revenue is maximized at some point between 0% and 100%" and turned it into "the tax revenue maximizing rate must be lower than our current rate" without presenting sufficient evidence for his claim. This was a convenient for some in Washington who already believed this to be true, and thus the "Laffer curve" was born. The following era of deregulation and lower taxes on the wealthy likely played a large role in increasing income inequality.
[1] The causes of stagflation are still debated, but I am convinced this was directly caused by the OPEC oil cartel using it's market power to quickly inflate the price of oil by 400%, creating a massive supply shock that started the stagflation spiral.
It's not "economists => inequality" it's neoliberal economists (almost all of them today) => inequality"
You think those concepts came out of democracy popping a macroeconomics book out of a vote?
As for your last paragraph, which things in the personal consumption expenditures (PCE) index don’t you buy? I just just read though the list of items in the PCE, and it seems like stuff we all buy.
https://www.bea.gov/about/pdf/1106_ACM_PCE.pdf
Also, I’m not clear on how this is much different from what economists attempt to do: create models and test them with data.
I’m happy to be corrected on this, but ‘inflation’ in the US is usually the CPI-U series; less Food and Energy when the Federal Reserve sets monetary policy; not the PCE with which I am unfamiliar. I got weights from [1], which suggest 25% weighting to a theoretical owners rent component which in reality I don’t pay because I don’t have a mortgage. Obviously the index can't apply to everyone, happens not to apply to me. I would love to see a comparison of CPI weights vs average expenditure, which might make me feel a lot better, but I don't know where to find that info.
As for elaborating on the monetary policy part, I broadly subscribe to the idea that a 10% increase in the amount money should link to a comparable reduction in the value of a unit of currency. That is basically using a personal inflation rate that is the rate of increase in the M2.
The core inflation rate is <3%, the inflation rate that I expect is 5%. This means either I am wrong (popular view) or that the inflation rate is measuring something that isn't very interesting. I favour 2 with the caveat of accepting inflation in asset prices as inflation which seems to be the big break with mainstream thought.
The big downside of this is all the usual stats become questionable – particularly ‘real GDP growth’, which I mentally downgrade by 2%. A lot of monetarist inflation types end up looking to measures like energy/capita, which is theoretically a measure of real wealth that can be used without relying on understanding inflation calculations. I like that measure for my own reasons.
[1] https://www.bls.gov/cpi/tables/relative-importance/home.htm
I didn't know what 'core inflation' meant so had to look at the wikipedia page. Assuming that wikipedia is correct, it looks like the fed has used PCE since 2000. Apparently, CPI is mainly used for social security benefits. CPI weighs 'shelter' costs as 40% of total whereas PCE weighs it at 18%. To test out their values, I viewed the 2016 value for DC (where I have a home and mortgage), and it looked relatively accurate. However, my mortgage for that property is less than 18% of my total expenses.
I'm kind of ignorant about monetary policy, so had to google some things. But, I don't follow your statement about the relationship between M2 and inflation. Are you saying that M2 should be directly related to inflation? I would expect that M2 would only have a moderate influence over inflation because prices are based on supply and demand, not how much money there is.
For instance, let's say this year there are 200 coins distributed evenly to 10 people. You produce 10 widgets, and each of the 10 people are willing to pay 10. You make the exchange and get 100 coins, and they're left with 10 each.
The next year someone new shows up and has 20 coins making the total money supply 220. You produce another 10 widgets, but only the new guy wants a widget (the others already have one). He is not willing to pay 10 coins, but you and him agree that he can pay 1 coin. Money supply went up, but prices went down. Then the following year, all 11 people want widgets, but you're way more efficient and are now producing 20. I'd expect prices to stay less than 10 but probably higher than 1 even though the money supply didn't change.
I'm probably wrong about all of this stuff, of course. But, either way, it seems complex and data intensive enough to require a specialist.
However, your 200 coins scenario is not very agreeable to me:
1) Minor point, there is an assumption of over capacity where the widget producer could presumably produce 9 spare widgets most years.
2) More subtle point, widgets require raw resources to produce. Ignoring the machine to make the widget, the actual widget is presumably made of stuff or in the case of a service, the cost is the stuff required to maintain the servicer's lifestyle. Your scenario has quietly assumed that there are sufficient resources for our purposes. I see the question on monetary policy as being ‘does this assist in the efficient allocation of resources’. I do accept that as correct, I don’t accept it as fundamentally relevant to what I think is important, because it hasn’t made reference to the resources used to produce the widgets (ie, what was the opportunity cost) and hence begs my question. The mechanics of the situation aren’t just the feelings of how much people want to pay, they are linked to resource availability vs willingness of market participants to work for what they want. It has made me understand why I thought inflation was irrelevant to my circumstances.
4) If a rational actor appears with excess currency and doesn't want to compete with other consumers for presently available resources, then they aren’t going to sit there cheerfully with 19 currency in their pocket. If they aren’t going to buy current resources, they will buy control of future resources. Otherwise it raises the question of to what end did they accept the new currency and why is it being created?
I'm going to have to stop there because my complaints need rebuilding, but I think I'll end up finding out what the name for asset-price inflation and properly learn about the velocity of money, but is since it isn't expressed in inflation then it must be competing for future resources which I expect to turn up in asset prices. If that formulation survives scrutiny, then something really interesting must be afoot to do with how future claims on resources will be settled.
Thanks again for your interest, this has been a very illuminating conversation for me that has reduced my ignorance of economics substantially and will improve my arguments in the future.
The Fed lowers the interest rate because they have an incentive for the economy to perform well, because they want to look good (Alan Greenspan admitted he kept interest rates lower longer than he thought necessary because he wanted to retire on a high economy). This makes money cheap, so to speak, which creates incentive for everyone to borrow. Individually, this makes sense, but together, this ends in 2009-style.
On top of that, many monopolies are created via regulations and laws.
The fact that you're not even able to discuss these concepts or to realize that economists are incentivized to believe exactly the opposite of what I've said, because they financially benefit as central planners, mean that you are anti-intellectual, not the OP.
I happen to be reading "A History of The World Economy", by James Foreman-Pack. It contradicts you at every turn (Chapter 6 esp) and notes there was a time when the U.S. was the odd man out, lacking a national bank and suffered more severe downturns than other nations, amongst other things.
Friedman's "Monetary History of the United States" pg 9-10
There is no stock of money. There are only political decisions, assorted client and patron relationships, and national and international conflicts among interest groups that define social goals and resource distribution.
Money is political power counted on imaginary tally sticks. Volume fluctuations are irrelevant. What matters is what people do, for whom, to what end, using what resources.
In an alleged democracy what should matter is economic enfranchisement - which in practice means creating fluid and porous social castes and interest groups, and inventing interesting goals with intelligence, realism, and effectiveness.
Booms and busts are caused by aimless short-term accumulation, which is a form of unintelligent goal setting. Whether tally sticks are referenced to lumps of shiny metal or numbers derived by fiat is wholly irrelevant if the only goal is to acquire as many sticks as possible, and nothing else matters.
The usual multiplier of funds in a bank assumes that the depositors will regard their banked money as still theirs and available. But note that this is actually the OPPOSITE of the thinking of my grandparents, who lived through the great depression. To them, the largest single reason to put money in a bank was precisely to forget about it; and to piously treat it as now beyond their reach and ability to spend because it was now part of a sacred reserve. A very deflationary logic since it brings down the effective banking multiplier of the money supply (reflected by spending) sharply. And this is indeed what happens after a recession, and a kind of thinking that's still with us, post 2008.
Of course, changes in sexual selection are also a large part of this. Young women and men shifted from being very interested in free spenders of the opposite sex (as a proof of money) before 2008 to being much less interested in being married to a free spender, thanks. Where I live, I was woken by revelers in the early morning leaving the fanciest downtown bars blocks away until 2008 at least a couple of times a week, for years. In all the years since that crisis, those extreme revelers have only very rarely been heard from by me. Despite my being a much less sound sleeper, now. Here too, sexual selection shifts post-crisis to a logic that's closer to bank-it-and-don't-think-about-it. (Debt accumulation, say on credit cards, may contradict me by now, however.)
No period (before 1914) is given by Friedman. This matters because, as my source is careful to say, a remarkably rigid system of international currency exchange rates had been formed before the WWI. This wasn't an accomplishment of the U.S., nor was it entirely safe, wise, or productive.
Of course, rather by definition, if multiple currencies are all convertible to gold (as they were pre-1914) they rise and fall in exact sync with each other with every whim of the gold market, every gold discovery, etc - until one falls off the cliff and has to renounce conversion - but that hardly means no whiplash!! In fact it means countries are less insulated from each other's economic troubles, more of a monoculture than a robust ecosystem - and, as stated, every country's economy is whipped about by anything that changes how easy it is to get gold out of the ground or increases or decreases consumption of it, including fashion and improvements in dental technology. Also, even the severest depression won't be reflected in the exchange rates. And it was those downturns, that were the topic.
Stable exchange rates have a trade-off; and they certainly don't prove economic stability or the absence of downturns at all. It's more like watching a team of acrobatic aircraft: they all maintain their wingtip distance strictly, and that's fine: but if one plane goes into the ground, they all do. Being in close formation isn't a proof you're not headed for a mountain or the ground; because it's not the kind of stability that has anything to do with that most important risk. Ditto rigid exchange rates.
What changed in 1914 was war. There was no intellectual decision that gold convertibility was unfashionable - war breeds inflation, necessity made conversion a hindrance to the war efforts. That international confusion (and therefore the resultant fluctuations in currency exchange rates worldwide) wasn't created by the American decision to have a central bank, for goodness sake. If anything the arrow of causation went the other way.
If Milton finds it hard to believe that the war-to-end-all-wars might have caused a wee bit of currency turbulence, so it had to be the U.S. finally creating a Federal Banking Institution that did that all over the world, he's rather isolated in that position. But of course, he's slyly leaving that leap into the abyss for the reader to make.
> and has to renounce conversion
This problem only happens in a fiat money system. It notably happened in 1930 in the US.
Nixon renounced conversion to go to a fiat system. That's what renouncing conversion means, to abandon conversion, leaving only the fiat. You are agreeing strenuously.
And again, all this a whole other topic than whether downturns were more or less frequent: which was where I started.
> exchange rates of currency
That was not the topic, the topic was instability in the money supply.
> Nixon
The US official exchange rate was a fiction from 1930-Nixon, because it was illegal to hold gold as a monetary instrument. Nixon simply did away with the fiction.
Now you want to change the topic away from EITHER economic stability OR exchange rate stability? To money supply stability, a whole other topic? Yikes.
Nixon - cavilling. Choose any illustration and the logic and semantics of "fiat" remain. Once again, you're off on a new topic, a new distraction. Not only is that not logical, it's not civil, either.
There are laissez faire arguments to counter every example you provided, but calling monetary policy laissez faire is oxymoronic or, if you prefer, anti-intellectual.
Respectfully, you just dismissed an entire school of economic thought out of hand.